Workings of the Auto Industry: gas prices

Monday, October 10, 2011

Economy, Gas Affect Consumer Buying Trends

3:10 AM Collin H 2 comments

Gone are the days when auto makers can rely on marketing or strong fads to get cars off the lot. During the recession and in its wake, car buyers are making rational, price-based decisions that are influenced largely by gas prices. Auto makers have slimmed back their product lines in the interest of fuel efficient cars. Interestingly enough, consumers did not wipe out supply of hybrid cars during the recession. In April 2009, sales of Toyota's hybrid, Prius, fell 61.5 percent (1). But by February 2010, sales of all Toyota's hybrids rose 50 percent compared with sales from the previous year (2). This signals that gas prices alone do not determine buying trends in the industry. Consumer confidence in the overall economy greatly influences buying patterns for large purchases such as autos.

Sales are also influenced by which areas of the economy show more growth. If the home market rises, demand for construction and other services like landscaping also rises. This in turn gives construction, landscaping, and other firms more buying power in terms of commercial vehicles and light trucks. In February 2010, sales of light trucks were higher than sales of consumer autos. Consumer autos held in the edge, however, in the same period of 2009.

Consumer trends can be tough to predict within the auto industry. Auto makers face the challenge of having to know what buying trends will exist in two to five years. New autos that meet market trends and demands cannot be produced overnight. Time, the economy, and gas prices will determine the future rules of the road in terms of buying trends.